REGIONAL POPULATION DENSITY AND ENTREPRENEURIAL affect individual decisions in the entrepreneurial...

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  • Paper to be presented at

    DRUID15, Rome, June 15-17, 2015

    (Coorganized with LUISS)

    REGIONAL POPULATION DENSITY AND ENTREPRENEURIAL GROWTH

    ASPIRATIONS: THE MODERATING ROLE OF INDIVIDUAL HUMAN

    CAPITAL Joan-Lluís Capelleras

    Autonomous University of Barcelona Department of Business

    joanlluis.capelleras@uab.cat

    Ignacio Contín-pilart Public University of Navarra

    Department of Management and Organization contin@unavarra.es

    Martin Larraza-kintana

    Public University of Navarra Department of Management and Organization

    martin.larraza@unavarra.es

    Victor Martin-sanchez Autonomous University of Barcelona

    Department of Business victor.martin.sanchez@uab.cat

    Abstract We build on different theoretical perspectives to investigate the unique and joint effects of population density and nascent entrepreneurs? human capital endowments (higher education, entrepreneurship training and owner-manager experience) on entrepreneurial growth aspirations. We test a number of hypotheses using data that combine individual and province level information in Spain over the period 2008-2010. We argue that growth aspirations of nascent entrepreneurs are higher in more densely populated regions, but that such environmental influence is stronger for individuals with greater human capital. This is because they will be more aware that denser regions offer more favorable

  • conditions for new businesses and also requires greater firm growth to compensate for a higher risk of business failure. Consistent with our view, we find that the growth aspirations of nascent entrepreneurs with higher education and with owner-manager experience are higher in densely populated provinces.

    Jelcodes:J10,M13

  • 1

    REGIONAL POPULATION DENSITY AND ENTREPRENEURIAL

    GROWTH ASPIRATIONS: THE MODERATING ROLE OF

    INDIVIDUAL HUMAN CAPITAL

    !

    ABSTRACT

    We build on different theoretical perspectives to investigate the unique and joint effects of

    population density and nascent entrepreneurs’ human capital endowments (higher education,

    entrepreneurship training and owner-manager experience) on entrepreneurial growth

    aspirations. We test a number of hypotheses using data that combine individual and province

    level information in Spain over the period 2008-2010. We argue that growth aspirations of

    nascent entrepreneurs are higher in more densely populated regions, but that such

    environmental influence is stronger for individuals with greater human capital. This is

    because they will be more aware that denser regions offer more favorable conditions for new

    businesses and also requires greater firm growth to compensate for a higher risk of business

    failure. Consistent with our view, we find that the growth aspirations of nascent entrepreneurs

    with higher education and with owner-manager experience are higher in densely populated

    provinces.

    Keywords: entrepreneurship, growth aspirations, human capital, population density.

  • 2

    INTRODUCTION

    Entrepreneurs’ aspirations to grow capture the individuals’ beliefs or conjectures about the

    growth potential of their ventures and are a reflection of their own motivations for running the

    business (Levie and Autio, 2013) 1 . Previous research on entrepreneurial growth aspirations

    has shown a positive effect of growth aspirations upon subsequent real growth (Baum et al.,

    2001; Wiklund and Shepherd, 2003; Davidsson et al., 2006), which has led to an increasing

    interest in the antecedents of such aspirations. Recent evidence shows that both external

    conditions and entrepreneur’s background have an impact on the formation of growth

    aspirations (Acs and Autio, 2010; Estrin et al, 2013). However, there is a need to better

    understand the combined influence of environmental conditions, particularly the immediate

    context of the new firm, and individual characteristics related to the entrepreneur.

    This lack of knowledge is fairly surprising because entrepreneurship is the outcome of the

    interplay between environmental conditions and individual attributes (Shane, 2003; Shane and

    Venkataram, 2000; Capelleras et at., 2014; Grichnik et al., 2014). In this sense, Davidsson

    (1991) points out that “objective” regional conditions have an impact on cognitive processes,

    which, in turn, would impact entrepreneurial growth aspirations. The present study

    contributes to the emerging literature on entrepreneurial growth aspirations formation by

    analyzing the joint effect of environmental conditions and individual characteristics. In this

    vein, we seek to further understand the interplay between the individual characteristics of the

    entrepreneur and his/her surrounding environment. We develop a framework to investigate

    the unique and joint effects of population density and entrepreneurs’ human capital on growth

    aspirations of nascent entrepreneurs. The framework is based on insights from the regional

    entrepreneurship literature, together with the judgment-based approach to entrepreneurship,

    the entrepreneurial cognition framework and human capital theory.

    We first argue that the immediate context where the firm is created, particularly the regional

    environment of the new business, will affect entrepreneurial growth aspirations. The role of

    the regional context in entrepreneurial activity is acknowledged in the entrepreneurship and

    economic geography literatures (e.g. Malecki, 1997; Trettin and Welter, 2011). While a

    number of regional variables have been shown to affect entrepreneurship, we focus on the

    !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 1 While researchers have used terms such as “growth intentions”, “growth ambitions” or “growth aspirations”

    interchangeably (Levie and Autio, 2013), we follow recent studies in this area and use the term entrepreneurial

    growth aspirations (e.g. Autio and Acs, 2010; Estrin et al, 2013).

  • 3

    level of population density. Population density determines both the opportunity structure (on

    the demand side) and the resources and abilities of individuals and their attitudes toward

    entrepreneurship (on the supply side). Hence, it captures features of the environment that are

    central to understand entrepreneurial behavior and, thus, growth aspirations of nascent

    entrepreneurs. Greater population density stimulates the creation of new firms due to a

    relatively-high number of entrepreneurial opportunities to be discovered and exploited

    (Ucbasaran et al., 2008; Dencker et al., 2009; Dencker and Gruber, 2014), but, at the same

    time, enhances competition, which may lead to high business failure rates (Bosma et al, 2008;

    Kibler et al., 2014; Lööf and Nabavi, 2015). In these conditions prospective entrepreneurs

    will require a greater performance threshold to their ventures. It follows that the growth

    aspirations of the nascent entrepreneurs in these regions will be higher.

    Secondly, drawing on the notion that “objective” characteristics of the regional environment

    (Kibler, 2013) and human capital interact in shaping entrepreneurial growth aspirations, we

    examine how population density and the founder’s knowledge endowments jointly affect

    entrepreneurial growth aspirations. We argue that the relationship between population density

    and aspirations will be moderated by the entrepreneurs’ human capital. Human capital gained

    through formal educational processes or experience allows nascent entrepreneurs to better

    gauge the opportunities and threats of the surrounding environment. At the same time, greater

    human capital increases nascent entrepreneurs’ self-efficacy (Autio and Acs, 2010). All

    together leads us to expect that growth aspirations in regions with greater population density

    will be higher for those nascent entrepreneurs with bigger endowments of human capital.

    Our empirical analysis is based on a sample of 643 of nascent entrepreneurs in Spain. We

    concur with the definition provided by the Global Entrepreneurship Monitor (GEM) project

    and define a nascent as an individual who has launched an enterprise that is less than 3

    months old. Our choice of nascent entrepreneurs is based on the interest for exploring

    growing aspirations when those intentions are emerging (Douglas, 2013). Specifically, our

    data set combines individual-level information obtained from the GEM project in Spain with

    province-level information gathered from the Spanish Statistics Institute during a recessive

    period (2008-2010). A multilevel analysis is employed for testing the hypotheses. Results

    confirm that growth aspirations of nascent entrepreneurs are higher in densely populated

    provinces and that in these provinces growth aspirations increase with higher education and

    with owner-manager experience.

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    The rest of the paper is organized as follows. First, we develop and justify four testable

    hypotheses. Second, we describe the data, variables and methods. Third, we present the

    results of our empirical analysis. To conclude, we discuss the implications of the findings.

    HYPOTHESIS DEV